TRS drops investment firm founded by Cellini

Tuesday

Feb 24, 2009 at 12:01 AMFeb 24, 2009 at 5:20 AM

The Illinois Teachers' Retirement System has jettisoned an investment firm founded by Springfield developer and Republican Party leader William Cellini, who has been indicted on federal corruption charges.

Bruce Rushton

The Illinois Teachers' Retirement System has jettisoned an investment firm founded by Springfield developer and Republican Party leader William Cellini, who has been indicted on federal corruption charges.

The TRS board last week replaced Commonwealth Realty Advisors, the Cellini-founded firm, with a Chicago-based firm called Heitman, which manages nearly $20 billion in real estate assets. The portfolio of retail real estate managed by Commonwealth is worth about $1.2 billion, TRS says.

Commonwealth says the teachers' pension board was its single biggest client, representing more than half of the company’s portfolio.

“Commonwealth is obviously disappointed in the board’s decision,” Commonwealth spokesman Dennis Culloton said. “Yet, it is very proud to have been associated with the fund and to have provided the teachers of Illinois with double-digit investment returns over its 17-year investment relationship.”

Culloton said he believes the transition will be complete in June.

TRS spokeswoman Eva Goltermann said the decision to replace Commonwealth was a strategic one. She would not say whether pending criminal charges against Cellini played any role in the decision to bring in another firm. Cellini transferred his interest in Commonwealth to his son William and daughter Claudia during the 1990s.

Board members who made the decision would not discuss their reasoning. When The State Journal-Register called TRS board members, Goltermann e-mailed the newspaper, saying she would speak for the board. Asked why, Goltermann said: “They don’t handle press calls. I do. And I’m telling you why they took the action. It was a strategic investment decision.”

Real estate had been one of the best-performing segments of the TRS portfolio, according to a TRS press release issued in April, when real estate accounted for 11 percent of TRS investments. Investments in real estate returned nearly 23 percent in 2007, TRS said at the time, and almost 18 percent over five years.

In 2006, TRS executive director Jon Bauman said Commonwealth Realty Advisors was one of the pension system’s best-performing investment managers.

So, why change?

Goltermann said the board wants to diversify its real-estate portfolio and put investments in the hands of generalists as opposed to firms that specialize in certain geographic areas or economic sectors.

The TRS investments managed by Commonwealth involved retail properties. Culloton said that Commonwealth focused on retail properties at the request of TRS.

Goltermann declined to say how well the Teachers' Retirement System’s Commonwealth investments have performed.

However, the Illinois State Board of Investment, which manages the pension assets of the Illinois General Assembly Retirement System, Judges’ Retirement System and State Employees’ Retirement System, has slightly more than $23 million invested in seven Commonwealth projects. The value has fallen by $1.8 million since the board invested three years ago, ISBI executive director William Atwood said. Because of payments from tenants, the annual return is .85 percent, he said.

The success of Commonwealth projects has been mixed, with some doing well, some doing poorly and others somewhere in between, Atwood said. It’s too early to say whether the Board of Investment’s relationship with Commonwealth has been successful, he said.

“With this portfolio, it’s an open question,” Atwood said. “We’re three years into it. We think the portfolio is going to be fine, but this is a very tough environment.”

Bruce Rushton can be reached at (217) 788-1542 or bruce.rushton@sj-r.com.